Market Watch

Alan Brugler is the President of Brugler Marketing & Management, and the primary analyst and advisor.

The US Dollar Index Asserted Its Influence in Commodities…Again

Jun 12, 2009

Market Watch Summary with Alan Brugler

June 12, 2009

The US Dollar Index Asserted Its Influence in Commodities…Again

Corn was down 19 cents for the week.Corn futures continued to show their energy and dollar dependence this week.On Thursday, crude oil futures settled at $72.68 a barrel, the highest since October 20, after a 3-day rally.That 3-day rally was supportive to corn, but the US dollar index this week determined whether corn was to settle in negative or positive territory.Though the US dollar index is still moderately lower than its last Friday value, its recovery since pressured corn.Concerns over yield prospects of corn, especially from weather-related planting delays in the eastern Corn Belt, provided additional underlying support to futures this week.As noted in this past Wednesday’s USDA Supply and Demand report, continuous planting delays through late May attributed to the USDA to cut 2009/10 corn yield per harvested acres projection by 2 bushels.This translates to a 155 million bushels reduction in 2009/10 corn production.

Soybeans were up 20 cents for the week. Soybean meal was the main story, as July meal surged to life of contract highs on Thursday, hitting $433.40. The meal rally was particularly unwelcome news to unhedged livestock producers, who were already facing negative closeouts from the drop in cattle and hog prices, and getting squeezed by higher corn. Tight supplies of 48% protein meal that meet delivery specifications appear to be part of the picture. The slow down in US crushing activity this year may also play a role, creating some spot shortages. However, the big rally on Thursday was pure short-covering. Open interest in the July meal contract dropped 4,280 contracts as previous sellers threw in the towel and bought their way out of positions that had been steadily losing them money.Soy oil was unable to follow heating oil higher on biodiesel terms, mainly because meal/oil spreaders were selling bean oil against long meal positions. A pull back in palm oil and soy oil prices in China also put a more bearish spin on the market, as did a collapse in basis premiums for soybeans at Brazilian ports.

Wheat futures in Chicago, Kansas City and Minneapolis all ended the week lower compared to last week.Though this week’s USDA export sales report showed a better than expected net sales of 2009/10 (new crop) at 353,910 metric tons, a cancellation of 2008/09 (old crop) wheat export sales at 27,387 metric tons was reported to end the 2008/09 marketing year.Declining US wheat export demand and sentiment over abundant world wheat supply gave underlying pressure to futures this week.In this week’s USDA Supply and Demand report, the June projection of 2009/10 world wheat supply at 824.46 million MT was reduced by 22,000 metric tons from the May projection at 824.68 million.This updated figure is still a 2.78% increase from the 2008/09 world wheat supply of 802.15 million MT.The USDA did lower 2009/10 US wheat production by 10 million bushels due to a forecasted reduction in winter wheat production.On top of these two conditions, the US dollar index this week provided addition pressure to wheat futures.

Below is a table showing the net weekly changes and 4 week history of selected agricultural futures contracts:

Market Watch

Weekly

Weekly

05/22/09

05/29/09

06/05/09

06/12/09

Change

% Change

July Corn

$4.30

$4.36

$4.44

$4.26

0.19

-4.17%

July CBOT Wheat

$6.13

$6.37

$6.23

$5.85

0.38

-6.14%

July KCBT Wheat

$6.61

$6.87

$6.75

$6.37

0.38

-5.63%

July MGEX Wheat

$7.45

$7.72

$7.44

$7.33

0.11

-1.48%

July Soybeans

$11.66

$11.84

$12.26

$12.46

0.20

1.63%

July Soy Meal

$375.00

$382.50

$396.00

$422.70

26.70

6.74%

July Soy Oil

$38.10

$39.05

$39.73

$37.16

2.57

-6.47%

June Live Cattle

$82.53

$81.32

$80.15

$80.47

0.32

0.40%

Aug Feeder Cattle

$101.93

$101.75

$96.62

$97.57

0.95

0.98%

June Lean Hogs

$65.98

$63.92

$57.17

$57.02

0.15

-0.26%

July Cotton

$57.11

$56.97

$55.11

$56.10

0.99

1.80%

July Oats

$2.50

$2.51

$2.56

$2.39

0.18

-6.84%

July Rice

$12.06

$12.35

$12.62

$12.93

0.31

2.46%

Cotton in the Friday session hit a 1-week high at $56.82, but followed the broad-based weakness in commodities due to strength in the US dollar index.For the week cotton contracts were 99 cents higher than a week ago.This was partly attributed to higher crude oil futures for the week, compared to last week.Lately, cotton has been taking its cues from not only from commodities against the US dollar, but from crude oil and the US stock markets as well.The Dow Jones Industrial Average, NASDAQ Composite, and the S&P 500 indices have a positive weekly percentage gain which lent support to cotton.

Cattle complex settled on the positive side this week.Live cattle futures ended up 32 cents for the week, and feeder cattle contracts finished up 95 cents.Support this week to live cattle came mainly from front month futures contracts trading at a discount to last week’s cash cattle prices, and cattle observed the US stock markets for direction as well.Lower boxed beef cutout values for the week and expected lower cash cattle prices this week limited any gains.Feeders received support this week from front month futures contracts trading at a discount to the CME Feeder Cattle Index, and lower corn futures.Talk of improved grass pastures which will increase demand also lent support, though this week cash feeders saw lower prices compared to the previous week.

Friday, June 12, 2009 marked the expiration day for June lean hog futures.Continuing impact in world pork demand due to the H1N1 “swine” flu situation still overhang on hogs.Talk of herd liquidation which will increase pork supply also weighed this week on futures.Pork cutout values for the week were mainly lower due to decrease demand.Additionally, for a time lean hog futures traded at a bearish premium to the CME Lean Hog Index which weighed on futures prior to June’s contract expiration.

Market Watch:We’re past June hog expiration, and past the USDA supply/demand reports. That shifts focus back to wrapping up planting progress, and the condition ratings of the crops that we have planted. Corn and spring wheat condition ratings have been surprisingly good given the challenging weather this spring. NOPA is scheduled to issue their May crush report on Monday morning. On Monday night we’ll see the weekly USDA Crop Progress report at 3:00 pm CDT.USDA will issue weekly Export Sales numbers on Thursday morning, with traders looking to see if there are additional Chinese cancellations. On Friday, USDA will issue the monthly Cattle on Feed report after the close of futures trading for the week.

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